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Why the Nuix share price crashed 19.5% on Monday

Investors flee the stock as management downgrades revenue expectations yet again.

Investigative analytics and intelligence company Nuix (ticker: NXL) has had a short and tumultuous operating history.

After IPOing to significant fanfare and peaking at $11.85 per share in January, the stock has faced significant selling pressure.

The why

Problems started following the interim results, released in March. Here the company booked revenues of just $85.3 million – representing just 44% of full-year guidance – but management nonetheless said the firm was on track to meet its IPO prospectus revenue target of $193.5 million.

The market didn’t seem convinced and Nuix shares fell 21%, trading to just over $6 per share, following the interim release

At the time we raised the following question:

‘Does the sell-off in the stock suggest that the market doubts Nuix’s ability to deliver on its full-year revenue guidance?’ Retrospectively, the market was undeniably right to have its doubts.

Then in April, the penny dropped. Nuix told the market it would no longer hits its prospectus guidance. Instead, FY21 revenue was now expected to come in at between $180 million to $185 million.

Full-year annualised contract value (ACV) was also revised down, now expected at $168 million to $177 million, from $199.6 million.

Despite that, earnings (EBITDA) guidance was actually revised up from $63.6 million, then expected to come in at between $64.6 million to $66.6 million.

Old history is new again

Then the penny dropped again.

Nuix today lowered its FY21 revenue and ACV guidance again and the stock, unsurprisingly crashed, falling a staggering 19.58% to $2.71 per share by 1:14 PM.

The new expectations: revenue of between $173 million to $182 million and ACV of between $165 million to $172 million. EBITDA guidance remains unchanged. So that’s something.

Management attributed this fresh downgrade to the 'structure and timing' of a number of upsell opportunities to a handful of its large customers. Uncertainty also exists as to whether negotiations with these large customers 'may result in multi-year deals during FY21'.

These new expectations came with a heavy set of qualifications, with management saying:

'The revised forecasts are susceptible to a number of risk factors relevant between now and 30 June 2021, including final customer negotiations of productions and license types, timing of deals and potential FX rate variable.'

Despite all this, the Nuix CEO, Rod Vawdry said he understood the importance of meeting guidance figures issued to the market and that he was confident in the company’s long-term outlook.

‘We understand the importance of meeting financial forecasts. There's a near-term level of uncertainty regarding the precise timing, share and scope of some large and anticipated customer contracts coming to fruition in the next few weeks.'

Nuix trades at ~5x sales and ~42x enterprise value/ EBITDA.

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